Blair and Merkel unite at friendly talks

Tony Blair today warned that the issue of the rejected EU constitution would not go away, as he met the German chancellor, Angela Merkel, in Berlin for perceptibly warmer talks than with her predecessor, Gerhard Schröder.

Although Iran topped the behind-closed-doors talks, both leaders were united, if muted, in their public comments on the issue, with the German chancellor saying Tehran must not "overstep the mark" in relation to its nuclear ambitions.

The London-Berlin axis was reportedly strengthened with a meal at Ms Merkel's favourite east Berlin restaurant last night, as the pair met for the third time since the election of the centre-right leader in Germany last November.

Asked about the future of the EU constitution at their joint press conference this morning, Mr Blair stressed that, despite the failure of the project at the hands of French and Dutch referendums last year, "we need institutional change in Europe".

He added: "There is a period of reflection now in Europe about the constitution. But at some point we will come back to the point that a Europe of 25, or 27, cannot work effectively [under the current rules] ... so we're going to have to come back to this."

Mr Blair said he was not aware of calls from Iran this morning for British troops to leave southern Iraq, but told reporters it was an attempt to "divert attention" from concerns over Iran. He added: "British troops are there under UN mandate, and with the authority of the Iraqi government."

Britain and Germany, along with France, have been part of a triumvirate of EU powers attempting over the past three years to negotiate with Tehran over its nuclear programme - an initiative which is now at an end.

Today Mr Blair and Ms Merkel appeared united in their position over Iran, with Ms Merkel saying there was a "window" to resolve the situation before the UN security council meets in March to discuss the next steps.

Mr Blair today said: "In respect of Iran, we had a discussion about how to deal with this issue and deal with it strongly, but through the diplomatic channels that are available to us."

Ms Merkel told reporters, through a translator, "Germany, France and Great Britain have had a lot to do with making the situation clear there, and we don't want them to overstep their mark.

"We have spoken about how we can actually continue with talks about this to make sure our position is made clear.

"We would like to have a good situation with Iran. It is very clear that we want to do that in the window that we have set ourselves.

"We have looked to work together on this and we also want to look at all the differences that there are in the world regarding this and see how we can develop this further."

Neither Mr Blair nor Ms Merkel mentioned Iraq in their opening remarks to the press conference - where Mr Blair fell out with the centre-left SPD leader Mr Schroöder - in a sign that both sides want to put their differences behind them.

Both welcomed yesterday's European parliament vote in favour of liberalisation of the EU market in services.

Ms Merkel said that it was "very important to show Europe is not just a bunch of rules and regulations", in light of the opening up of the market in professional services such as florists, architects and undertakers.

And both voiced support for the "road map" towards a two-state solution to the Middle East conflict.

On the election of Hamas, Mr Blair said: "We respect the fact that Hamas won the election. We respect their mandate.

"There will be no settlement of the issue except on the basis of two states living side by side in peace - Israel confident of its security, and an independent and viable Palestinian state.

"If one side is saying we want to get rid of the other, how can we have a two state solution? That's a matter of logic."

The two leader leaders also discussed the European energy market, with Ms Merkel suggesting there could be a common policy over 15 years.

Mr Blair said it made "perfect sense" for EU members to work together over energy.

He added that they should also discuss the interconnection between different parts of the energy grid within Europe, research and development of different types of energy such as renewables, and how Europe could make itself more competitive.

Mr Blair's comments came after the European Commission yesterday announced a crackdown on energy companies accused of anti-competitive behaviour.

"There is the question of how Europe comes together and uses its collective power in negotiation with the outside world in respect of energy," he said.

"Energy is now one of the hot political issues. Europe and energy is a major factor in how we are going to be able to make ourselves competitive in the time to come. And I think it makes perfect sense for Europe to try and develop a common energy policy together and then, of course, you have got the liberalisation of the energy market."

Mrs Merkel visited Downing Street immediately after becoming chancellor last November, a meeting that was largely dominated by the EU budget discussions. She was then instrumental in brokering a deal on the EU budget itself in Brussels, where the UK was outnumbered 24-1 on the issue of its rebate.